Recommendations on the National Minimum Wage · 11/29/2017 · e co dom l and y pan y n a ael ds d...
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Recommendations on the National Minimum Wage Low Pay Commission November 2017 1
Transcript of Recommendations on the National Minimum Wage · 11/29/2017 · e co dom l and y pan y n a ael ds d...
Recommendations on the
National Minimum Wage
Low Pay Commission
November 2017
1
Our remit this year
2
To monitor, evaluate and review the levels of each of
the different National Minimum Wage rates and make
recommendations to apply from April 2018:
• The National Living Wage
• 21-24 Year Old Rate
• 18-20 Year Old Rate
• 16-17 Year Old Rate
• Apprentice rates
• The Accommodation offset
The remit varies across these rates
3
NMW • Follows the traditional basis of the
NMW since its inception: to raise
pay and prevent exploitation.
• The aim is to “help as many low-paid
workers as possible without
damaging their employment
prospects”
• Therefore the level is based on
affordability not need
NLW
• Target: ‘ambition of 60 per cent of
average earnings’. LPC role is to
plot the path.
• Some job loss tolerance:
The OBR forecast a
20,000-110,000 increase in
unemployment by 2020
(vs 1.1m employment gains 2015-
2021)
• Stricter test for increase not to
happen: ‘subject to sustained
economic growth
A different remit demands a
different approach
4
We proposed:
• calculating the rate
putting NLW ‘on course’
for 60 per cent using the
latest forecasts and
assessing affordability;
• a straight line bite path
was most likely;
Three flexibilities in the NLW
2020
goal
A moving target, its value
should adjust in line with
pay
The
profile
Can front-load or back-
load the path.
The
brake
Increases are subject to
‘sustained economic
growth’.
LPC set out its approach to the NLW in our Spring 2016 Report
How we met our remit this year
5
• Written evidence consultation with responses from around 60
organisations
• 2.5 days of oral evidence sessions meeting with representatives of
around 30 organisations
• 6 visits to Margate, Leeds, Glasgow, Belfast, Newport and Melton
Mowbray encompassing around 50 meetings with employers, employees
and their representatives
• Commissioning 9 independent research projects
• Comprehensive analysis of a range of economic and labour market data
Key considerations this year
6
NMW • What is the state of the youth labour
market in terms of employment and
earnings?
• Over the recession and its aftermath
the LPC recommended relatively
lower increases in the youth rates to
protect their employment position.
At the same we committed to restore
the lost differentials once economic
conditions improved – has this
condition been met?
NLW
• Does the most recent economic
evidence meet the condition of
sustained economic growth to
enable the NLW to be uprated in line
with the path to 60 per cent of
median earnings?
• What has been the impact of the
NLW so far? What is happening
with pay and employment for those
aged 25 and over, and those in low-
paying sectors in particular
7
Rate Apr-2017 Apr-2018
Annual
increase (per
cent)
National Living Wage £7.50 £7.83 4.4
21-24 Year Old Rate £7.05 £7.38 4.7
18-20 Year Old Rate £5.60 £5.90 5.4
16-17 Year Old Rate £4.05 £4.20 3.7
Apprentice Rate £3.50 £3.70 5.7
Accommodation Offset £6.40 £7.00 9.4
Rate recommendations
8
Rate recommendations
Rationale for the recommendations
9
NMW
• Record high employment and record low
unemployment
• Ongoing improvements in the
employment and unemployment rates of
18-24 year olds
• Wage growth for 18-24 has been higher
than for those aged 25 and over for the
last three years.
• 16-18 year old apprentices saw very high
earnings growth and research into £3.30
suggested minimal impacts
• Both employers and unions raised the
concerns about a widening gap between
the youth rates and the NLW.
NLW
• The economy is growing and several
indicators, notably business confidence,
investment and employment intentions
have improved since the immediate post-
Referendum lows.
• GDP growth has surpassed forecasts for
2016 and 2017 and is predicted to grow
just under 2 per cent in 2018.
• Importantly, jobs growth forecasts have
been significantly revised upwards and
predict an additional 125,000-175,000
jobs next year. The OBR’s July 2015
forecast of 1.1 million extra jobs by 2021
has already been met
The economy and the NLW
29 November 2017
Tim Butcher
10
Our judgement is based on…
11
1. The Economy • State of the economy Economic growth
Job growth (including the low-paying
sectors)
Productivity
Real wage growth
2. The NLW and
impact to date
• Earnings (bite and coverage)
• Employment and hours
• Competitiveness
3. Prospects for the
economy
• Forecasts
• Implications of the forecasts for the
NLW
4. Conclusion • Next steps
Growth slowing but still sustained
12
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Q1
20
10
Q2
20
10
Q3
20
10
Q4
20
10
Q1
20
11
Q2
20
11
Q3
20
11
Q4
20
11
Q1
20
12
Q2
20
12
Q3
20
12
Q4
20
12
Q1
20
13
Q2
20
13
Q3
20
13
Q4
20
13
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
14
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
15
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
16
Q1
20
17
Q2
20
17
GD
P G
row
th (
pe
r ce
nt)
GDP quarterly growth GDP growth on a year ago
Trend since Q1 1955 Trend since Q1 2010
Job growth has slowed but remains strong
13
24
25
26
27
28
29
30
31
32
33
-800
-600
-400
-200
0
200
400
600
800
1,000
19
99
Febru
ary
19
99
Au
gust
20
00
Febru
ary
20
00
Au
gust
20
01
Febru
ary
20
01
Au
gust
20
02
Febru
ary
20
02
Au
gust
20
03
Febru
ary
20
03
Au
gust
20
04
Febru
ary
20
04
Au
gust
20
05
Febru
ary
20
05
Au
gust
20
06
Febru
ary
20
06
Au
gust
20
07
Febru
ary
20
07
Au
gust
20
08
Febru
ary
20
08
Au
gust
20
09
Febru
ary
20
09
Au
gust
20
10
Febru
ary
20
10
Au
gust
20
11
Febru
ary
20
11
Au
gust
20
12
Febru
ary
20
12
Au
gust
20
13
Febru
ary
20
13
Au
gust
20
14
Febru
ary
20
14
Au
gust
20
15
Febru
ary
20
15
Au
gust
20
16
Febru
ary
20
16
Au
gust
20
17
Febru
ary
20
17
Au
gust
Em
plo
ym
en
t le
ve
l (m
illio
ns)
Ch
an
ge
in e
mp
loym
en
t o
n y
ea
r e
arl
ier
(th
ou
sa
nd
s)
Employment change on a year earlier (LHS) Employment level (RHS)
Pre-recession peak -
May 2008
And unemployment continues to fall
14
0
2
4
6
8
10
12
0.0
0.5
1.0
1.5
2.0
2.5
3.0
19
99 J
anua
ry19
99 J
uly
20
00 J
anua
ry20
00 J
uly
20
01 J
anua
ry20
01 J
uly
20
02 J
anua
ry20
02 J
uly
20
03 J
anua
ry20
03 J
uly
20
04 J
anua
ry20
04 J
uly
20
05 J
anua
ry20
05 J
uly
20
06 J
anua
ry20
06 J
uly
20
07 J
anua
ry20
07 J
uly
20
08 J
anua
ry20
08 J
uly
20
09 J
anua
ry20
09 J
uly
20
10 J
anua
ry20
10 J
uly
20
11 J
anua
ry20
11 J
uly
20
12 J
anua
ry20
12 J
uly
20
13 J
anua
ry20
13 J
uly
20
14 J
anua
ry20
14 J
uly
20
15 J
anua
ry20
15 J
uly
20
16 J
anua
ry20
16 J
uly
20
17 J
anua
ry20
17 J
uly
Un
em
plo
ym
en
t ra
te (
pe
r ce
nt)
Un
em
plo
ym
en
t le
ve
l (m
illio
ns)
Unemployment level (RHS) Unemployment rate (RHS)
Consequently, productivity has not
performed well
15
Q2 2007=100
60
70
80
90
100
110
120
130Q
2 1
992
Q2 1
993
Q2 1
994
Q2 1
995
Q2 1
996
Q2 1
997
Q2 1
998
Q2 1
999
Q2 2
000
Q2 2
001
Q2 2
002
Q2 2
003
Q2 2
004
Q2 2
005
Q2 2
006
Q2 2
007
Q2 2
008
Q2 2
009
Q2
201
0
Q2 2
011
Q2
201
2
Q2 2
013
Q2 2
014
Q2 2
015
Q2 2
016
Q2 2
017
Pro
du
ctivity in
de
x (
Q2
20
07
= 1
00
)
Output per worker Output per job Output per hour
Pre-crisis trend per worker Pre-crisis trend per job Pre-crisis trend per hour
And indeed this is much worse than
previous recessions
16
90
95
100
105
110
115
120
125
130
0 1 2 3 4 5 6 7 8 9 10111213141516171819202122232425262728293031323334353637
Sta
rt o
f re
cessio
n=
100
Quarters after start of recession
GDP08 Emp08 Prod08
GDP90 Emp90 Prod90
GDP80 Emp80 Prod80
Despite inflation picking up…
17
-2
-1
0
1
2
3
4
5
6
20
06 F
eb
rua
ry
20
06 A
ug
ust
20
07 F
eb
rua
ry
20
07 A
ug
ust
20
08 F
eb
rua
ry
20
08 A
ug
ust
20
09 F
eb
rua
ry
20
09 A
ug
ust
20
10 F
eb
rua
ry
20
10 A
ug
ust
20
11 F
eb
rua
ry
20
11 A
ug
ust
20
12 F
eb
rua
ry
20
12 A
ug
ust
20
13 F
ebru
ary
20
13 A
ug
ust
20
14 F
eb
rua
ry
20
14 A
ug
ust
20
15 F
eb
rua
ry
20
15 A
ug
ust
20
16 F
eb
rua
ry
20
16 A
ug
ust
20
17 F
eb
rua
ry
20
17 A
ug
ust
An
nu
al change
(p
er
ce
nt)
CPI CPIH RPI Core inflation (excluding food, energy, alcohol and tobacco)
…pay settlements remain around 2%
18
-1
0
1
2
3
4
5
62
01
0 F
eb
rua
ry
20
10 M
ay
20
10 A
ug
ust
20
10 N
ove
mb
er
20
11 F
ebru
ary
20
11 M
ay
20
11 A
ug
ust
20
11 N
ove
mb
er
20
12 F
eb
rua
ry
20
12 M
ay
20
12 A
ug
ust
20
12 N
ove
mb
er
20
13 F
eb
rua
ry
20
13 M
ay
20
13 A
ug
ust
20
13 N
ove
mb
er
20
14 F
eb
rua
ry
20
14 M
ay
20
14 A
ug
ust
20
14 N
ove
mb
er
20
15 F
eb
rua
ry
20
15 M
ay
20
15 A
ug
ust
20
15 N
ove
mb
er
20
16 F
eb
rua
ry
20
16 M
ay
20
16 A
ug
ust
20
16 N
ove
mb
er
20
17 F
eb
rua
ry
20
17 M
ay
20
17 A
ug
ust
Annua
l gro
wth
(per
cent)
XpertHR IDR LRD EEF CPI inflation RPI inflation
... average earnings growth also around 2%
19
-4
-2
0
2
4
6
8
200
6 J
an
uary
200
6 J
uly
200
7 J
an
uary
200
7 J
uly
200
8 J
an
uary
200
8 J
uly
200
9 J
an
uary
200
9 J
uly
201
0 J
an
uary
201
0 J
uly
201
1 J
an
uary
201
1 J
uly
201
2 J
an
uary
201
2 J
uly
201
3 J
an
uary
201
3 J
uly
201
4 J
an
uary
201
4 J
uly
201
5 J
an
uary
201
5 J
uly
201
6 J
an
uary
201
6 J
uly
201
7 J
an
uary
201
7 J
uly
An
nu
al e
arn
ing
s g
row
th(t
hre
e-m
on
th a
ve
rag
e, p
er
ce
nt)
Whole economy Private sector Private sector regular pay
Indeed, 2% seems to have become the
new wage norm
20
-5
0
5
10
15
20
25
30
351
96
5 Q
2
196
7 Q
2
196
9 Q
2
197
1 Q
2
197
3 Q
2
197
5 Q
2
197
7 Q
2
197
9 Q
2
198
1 Q
2
198
3 Q
2
198
5 Q
2
198
7 Q
2
198
9 Q
2
199
1 Q
2
199
3 Q
2
199
5 Q
2
1997 Q
2
199
9 Q
2
200
1 Q
2
200
3 Q
2
200
5 Q
2
200
7 Q
2
200
9 Q
2
201
1 Q
2
201
3 Q
2
201
5 Q
2
201
7 Q
2
Ave
rag
e a
nn
ua
l w
ag
e g
row
th (
pe
r ce
nt)
Average wage growth (AEI 1964-2001 and AWE 2001-2017) Average growth
6.6%
12.3%
17.1%
8.4%
4.2%
0.0%
1.9%
With inflation picking up that means real wages are
set to fall further behind pre-crisis levels
21
90
91
92
93
94
95
96
97
98
99
100
20
08 A
pri
l
20
08 A
ug
ust
20
08 D
ecem
ber
20
09 A
pri
l
20
09 A
ug
ust
20
09 D
ecem
ber
20
10 A
pri
l
20
10 A
ug
ust
20
10 D
ecem
ber
20
11 A
pri
l
20
11 A
ug
ust
20
11 D
ecem
ber
20
12 A
pri
l
20
12 A
ug
ust
20
12 D
ecem
ber
20
13 A
pri
l
20
13 A
ug
ust
20
13 D
ecem
ber
20
14 A
pri
l
20
14 A
ug
ust
20
14 D
ecem
ber
20
15 A
pri
l
20
15 A
ug
ust
20
15 D
ecem
ber
20
16 A
pri
l
20
16 A
ug
ust
20
16 D
ecem
ber
20
17 A
pri
l
20
17 A
ug
ust
Avera
ge
we
ekly
ea
rnin
gs (
Index A
pr
200
8 =
10
0)
Total AWE Regular AWE 2008 April=100
And, since 2007, real wage growth in UK has
been lower than in all but Greece and Mexico
22
-20
-10
0
10
20
30
40
Gre
ece
Mexic
o
United K
ingdom
Port
ugal
Icela
nd
Hu
nga
ry
Japan
Italy
Spain
Slo
venia
Isra
el
Neth
erlands
Fin
land
United S
tate
s
New
Ze
ala
nd
Austr
alia
Irela
nd
Luxem
bourg
Cze
ch
Rep
ublic
Sw
eden
Fra
nce
Lithuania
Austr
ia
Denm
ark
Norw
ay
Latv
ia
Canada
Ge
rman
y
Kore
a
Slo
vak R
epublic
Esto
nia
Pola
nd
Ch
ile
Gro
wth
in r
eal hourl
y p
ay 2
00
7-1
6 (
per
cent)
Impact of the NLW
23
Significant recent increases in the
minimum wage for those aged 25 and over
• NLW increased by 4.2% from £7.20 to
£7.50 in April 2017
• That followed an increase the
previous year of 10.8% (made up of
3.1% from £6.50 to £6.70 in October
2015 and 7.5% from £6.70 to £7.20 in
April 2016)
24
The bite of the NLW has increased along
our expected path
25
45.5
52.5
55.8
56.9
60% target
44
46
48
50
52
54
56
58
60
199
9 A
pril
200
0 A
pril
200
1 A
pril
200
2 A
pril
200
3 A
pril
200
4 A
pril
200
5 A
pril
200
6 A
pril
200
7 A
pril
200
8 A
pril
200
9 A
pril
201
0 A
pril
201
1 A
pril
201
2 A
pril
201
3 A
pril
201
4 A
pril
201
5 A
pril
201
6 A
pril
201
7 A
pril
201
8 A
pril
201
9 A
pril
202
0 A
pril
202
1 A
pril
Bite
of th
e N
MW
/NLW
at
the
me
dia
n (
pe
r cen
t)
April Mid-year bite
Introduction of
the NLW
There has been an increase in those paid
at the NLW, but a fall in those paid below
26
3.6
4.7
5.2
Those paid below NMW = 0.6%
Those paid below NLW = 2.0%
Those paid below NLW
= 1.3%
0
1
2
3
4
5
6
Unde
r 6.0
0
6.0
0
6.0
5
6.1
0
6.1
5
6.2
0
6.2
5
6.3
0
6.3
5
6.4
0
6.4
5
6.5
0
6.5
5
6.6
0
6.6
5
6.7
0
6.7
5
6.8
0
6.8
5
6.9
0
6.9
5
7.0
0
7.0
5
7.1
0
7.1
5
7.2
0
7.2
5
7.3
0
7.3
5
7.4
0
7.4
5
7.5
0
7.5
5
7.6
0
7.6
5
7.7
0
7.7
5
7.8
0
7.8
5
7.9
0
7.9
5
8.0
0
Jo
bs h
eld
by w
ork
ers
age
d 2
5 a
nd
ove
r (p
er
ce
nt)
Gross hourly earnings excluding overtime (£)
2015 2016 2017
Spillover effects from the NLW go up to
around the 30th percentile
27
0
2
4
6
8
10
12
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Gro
wth
in
ho
urly p
ay d
istr
ibu
tio
n (
pe
r cen
t)
Percentile of hourly pay, jobs employing those aged 25 and over
2015-16 2016-17 Estimated median growth excluding NLW & spillovers
The NLW is causing a compression in
penny differentials
28
Increase in NLW (£)
0
5
10
15
20
25
0.00
0.10
0.20
0.30
0.40
0.50
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Hou
rly p
ay in
20
16
(£)
Incre
ase
in h
ou
rly p
ay
dis
trib
utio
n (
£)
Estimated growth without the NLW Extra growth due to NLW 2017 pay (RHS)
Employment has picked up in the low-paying
sectors
29
-3
-2
-1
0
1
2
3
420
08
Jun
e20
08
Se
pte
mb
er
20
08
Decem
ber
20
09
Ma
rch
20
09
Jun
e20
09
Se
pte
mb
er
20
09
Decem
ber
20
10
Ma
rch
20
10
Jun
e20
10
Se
pte
mb
er
20
10
Decem
ber
20
11
Ma
rch
20
11
Jun
e20
11
Se
pte
mb
er
20
11
Decem
ber
20
12
Ma
rch
20
12
Jun
e20
12
Se
pte
mb
er
20
12
Decem
ber
20
13
Ma
rch
20
13
Jun
e20
13
Se
pte
mb
er
20
13
Decem
ber
20
14
Ma
rch
20
14
Jun
e20
14
Se
pte
mb
er
20
14
Decem
ber
20
15
Ma
rch
20
15
Jun
e20
15
Se
pte
mb
er
20
15
Decem
ber
20
16
Ma
rch
20
16
Jun
e20
16
Se
pte
mb
er
20
16
Decem
ber
20
17
Ma
rch
20
17
Jun
e
An
nu
al c
ha
ng
e (
pe
r ce
nt)
Low-paying sectors Non low-paying sectors
Employment has increased faster for
the groups with highest NLW coverage
30
0.0 0.5 1.0 1.5 2.0 2.5 3.0
Under 25's
All 25+
Non white
White
With disabilities
No disabilities
No qualifications
With qualifications
Non UK-born
UK
Female
Male
Change in employment rate Q1 2016 to Q1 2017 (percentage point)
However, hours have fallen in low paying
occupations but not in retail or hospitality
31
-2
-1
0
1
2
3
4
5
6
7
2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1
Cha
nge
in t
ota
l h
ou
rs o
n p
revio
us y
ea
r (p
er
ce
nt)
Low-paying occupations Non low-paying occupations Retail Hospitality
Announcement of NLW Introduction of NLW
Research evidence
• Although we again added to our evidence base,
with 10 Commissioned projects, the conclusions
of this research are in line with what has gone
previously – little significant robust evidence of
employment effects: firms have coped by
increasing prices, changing pay structures,
reducing non-wage costs, and squeezing profits
(potentially reducing investment)
• Interesting insights on non-compliance and use
of non-standard contracts
32
Stakeholder views on the NLW
• Less concern than about the introductory
rate. But effects again widespread.
• Lower forecast path has helped.
• But some sectors and small businesses are
still worried about the current rates.
• Future increases will be challenging.
• Unions thought NLW had been, and would
continue to be, affordable.
33
Stakeholder evidence on pay and
employment effects
• Evidence across many sectors of squeezed differentials and the difficulties of managing these.
• Mixed evidence on employee benefit reductions.
• Unions positive about NLW raising pay without harmful employment effects
• Some stakeholder evidence of negative employment effects in some sectors – but more likely to be from hours cuts or slower hiring.
• Warnings of ‘tipping point’ before 2020.
• Unions pointed to the strong labour market performance ad expected it to continue.
34
Stakeholder evidence on
competitiveness effects
• Most common effects (like last year) were lower
profits and higher prices.
• Price-taking sectors and sectors with funding
issues under more pressure.
• Some businesses have sought to improve
productivity. But still few specifics – more likely
small efficiency savings.
• But also delays/cuts to investment, especially in
smaller firms.
35
Going forwards
36
Forecasts for 2018 and 2019 • World economic forecasts had picked up with
stronger growth now expected, particularly in the EU
• Concerns about Brexit (and impact of sterling
depreciation on real incomes and consumption)
weighed on UK forecasts for 2018 and 2019, with
most analysts revising them down by around a third
(compared with before the EU Referendum)
• Inflation had picked up but was expected to wane as
currency and oil price effects worked their way out
• Some productivity forecasts had weakened, along
with wage growth, and consequently this had
lowered GDP forecasts
37
GDP growth remaining around 1.6%
38
2017 2018 2019 2017 2018 2019 2017 2018 2019
GDP Growth
(whole year)2 1.6 1.7 1.7 1.6 1.7 1.6 1.4 1.6
Average
Earnings AWE
(whole year)
2.6 2.7 3 2 3 3.3 2.2 2.6 3
Inflation RPI (Q4) 3.7 3.6 3.1 3.9 3.2 3.2
Inflation CPI (Q4) 2.4 2.3 2 2.8 2.5 2.2 3 2.4 2.2
Employment
growth (whole
year)3
0.6 0.4 0.4 1 0.5 0.8 1.1 0.4
ILO
unemployment
rate (Q4)
4.9 5.1 5.2 4.4 4.5 4.5 4.4 4.6 4.9
OBR forecasts
(March 2017)
Bank of England
forecasts
(August 2017)
Median of HM Treasury
Panel (August/October
2017)
Inflation expected to peak soon but will
only fall back towards 2% slowly
39
0
1
2
3
4
520
14
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
15
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
17
Q1
20
17
Q2
20
17
Q3
20
17
Q4
20
18
Q1
20
18
Q2
20
18
Q3
20
18
Q4
20
19
Q1
20
19
Q2
20
19
Q3
20
19
Q4
20
20
Q1
20
20
Q2
20
20
Q3
20
20
Q4
20
21
Q1
20
21
Q2
20
21
Q3
20
21
Q4
Infla
tio
n o
ut-
turn
an
d fo
reca
st (p
er
ce
nt)
CPI RPI
CPI - OBR forecast March 2017 RPI - OBR forecast March 2017
CPI - Bank central projection August 2017 RPI - HMT independent median Aug/Oct 2017
CPI - HMT independent median Aug/Oct 2017
Wage growth again expected to increase towards 3-4%
40
-1
0
1
2
3
420
14
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
15
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
16
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
17
Q1
20
17
Q2
20
17
Q3
20
17
Q4
20
18
Q1
20
18
Q2
20
18
Q3
20
18
Q4
20
19
Q1
20
19
Q2
20
19
Q3
20
19
Q4
20
20
Q1
20
20
Q2
20
20
Q3
20
20
Q4
20
21
Q1
20
21
Q2
20
21
Q3
20
21
Q4
Fo
reca
st e
arn
ing
s g
row
th (
pe
r ce
nt)
Whole economy average earnings growth OBR forecast March 2017
HMT median forecast Aug/Oct 2017 Bank of England indicative projection August 2017
But OBR has generally been too optimistic
41
0
5
10
15
20
25
30
35
40
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Cum
ula
tive
ave
rag
e e
arn
ing
s g
row
th (
%)
Back to contents June-2010 November-2010 March-2011 November-2011 March-2012
December-2012 March-2013 December-2013 March-2014 December-2014 March-2015
July-2015 November-2015 March-2016 November-2016 March-2017 Outturn data*
Although HM Treasury panel forecasts have been
closer to outcome than the Bank’s or OBR’s
42
-1
0
1
2
3
4
5
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
An
nu
al a
ve
rag
e e
arn
ing
s g
row
th (
pe
r ce
nt)
OBR Nov/Dec forecast HMT median forecast Bank forecast AWE outcome ASHE median 25+ outcome
As such the NLW path has been revised down since July
2015 but was unchanged from last autumn (at £8.61 in 2020)
43
£7.83
7.20
7.40
7.60
7.80
8.00
8.20
8.40
8.60
8.80
9.00
9.20
9.40
2016 2017 2018 2019 2020 2021 2022
NLW
fo
reca
st (£
)
Spring 2016 Report Autumn 2016 Report 2017 Report OBR July 2015 OBR Mar 2016
OBR Nov 2016 OBR Mar 2017 OBR Nov 2017 Actual
£7.50
£8.61
£8.57
£9.35 (OBR, July 2015)
£9.16 (Spring 2016)
£8.19
(2017)
OBR November 2017
The updated path for the NLW (£7.83 in 2018)
44
2016 2017 2018 2019 2020 2021
Lower
quartile£7.81 £8.17 £8.55 £8.78
Median £7.20 £7.50 £7.83 £8.20 £8.61 £8.89
Upper
quartile£7.84 £8.23 £8.66 £8.96
• In our Autumn 2016 Report, we projected that the NLW for
2018 would lie in the range from £7.80-£7.91 and the NLW in
2020 would be in the range £8.50-£8.73.
Conclusions • GDP growth had weakened but was expected to remain
above 1%
• The labour market remained resilient – strong job growth
• Inflation had picked up to 3% but was expected to fall back
• Average wage growth and pay awards remained at 2%
• Thus, real wages had fallen in recent months and
remained below their 2008 peak
• Forecasts expected wage growth to pick up towards 3%
• Limited evidence of employment effects of the NLW
• No hard evidence to deviate from path
The NLW should increase by 4.4% to £7.83
45
The youth rates
29 November 2017
Helen Connolly
46
The new rates
• 21-24 Year Old Rate rises by 33 pence (4.7 per
cent) to £7.38 an hour.
• 18-20 Year Old Rate rises by 30 pence (5.4 per
cent) to £5.90 an hour.
• 16-17 Year Old Rate rises by 15 pence (3.7 per
cent) to £4.20 an hour.
The largest increases for a decade. • Apprentice Rate rises by 20 pence (5.7 per
cent) to £3.70 an hour.
47
Government remit to the LPC
Help as many low-paid workers as
possible, without damaging their
employment prospects.
48
Key factors behind the youth rate
recommendations • What is happening across the economy?
• What is happening to young workers’ pay? If youth pay is rising there is more scope for the youth rates to rise.
• What is happening to the youth labour market? A strong labour market – with rising employment and falling unemployment – is better able to sustain increases in the youth rates.
• Are more employers using the youth rates? Increasing use implies less willingness/capacity to pay above the rates – so increases may risk jobs.
• Is there a problem with compliance? Increasing underpayment implies greater stress on employers.
• What are stakeholders telling us?
49
Stakeholder views on the youth rates
• No calls from employers to freeze the rates but
employers, particularly small businesses, urged us
to consider the employment risks of increases.
• Unions favoured extending the NLW to younger
workers (as well as raising the NLW significantly).
• Unions – and some employer groups – were
concerned about a widening gap between the NLW
and the 21-24 Year Old Rate.
• Substitution? Only a few isolated reports of
businesses introducing youth rates or switching to
younger workers.
50
Strong pay growth at the median for
18-20 year olds and 21-24 year olds.
51
3.0
3.7
1.8
2.4
5.9
4.2
3.0
5.05.2
1.9
3.4 3.3
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2014-15 2015-16 2016-17
Ho
urly e
arn
ings g
row
th a
t th
e m
ed
ian
, e
xclu
din
g a
pp
ren
tice
s(p
er
ce
nt)
16-17 18-20 21-24 25-30
Across the distribution, pay growth for 21-
24 year olds averaged 4.8 per cent.
52
5.2
0
1
2
3
4
5
6
7
0 10 20 30 40 50 60 70 80 90
Ho
urly p
ay g
row
th (
pe
r ce
nt)
Percentile of the hourly pay distribution for 21-24 year olds, excluding apprentices
£7.05 paid 2nd to 6th percentile NLW paid
15th to 18thpercentile
Average growth acrossthe earnings distribution -
4.8 per cent
Across the distribution, pay growth for 18-
20 year olds averaged 5.8 per cent.
53
4.2
0
1
2
3
4
5
6
7
8
9
0 10 20 30 40 50 60 70 80 90
Hou
rly p
ay g
row
th (
pe
r ce
nt)
Percentile of the hourly pay distribution for 18-20 year olds, excluding apprentices
£5.60 paid 2nd to 9th percentile
NLW paid 45th to 50thpercentile
Average growth acrossthe earnings distribution -
5.8 per cent
Pay growth for 16-17 year olds averaged 2.6
per cent across the distribution, above the
median (1.8 per cent).
54
1.8
0
1
2
3
4
5
6
7
0 10 20 30 40 50 60 70 80 90
Ho
urly p
ay g
row
th (
pe
r ce
nt)
Percentile of the hourly pay distribution for 16-17 year olds, excluding apprentices
£4.05 paid 2nd to 11thpercentile
NLW paid76th to 79th percentileAverage growth across
the earnings distribution -2.6 per cent
Is the high pay growth observed for
young people due to the NLW?
Yes, the NLW is one of the drivers:
• Around one in twenty young people (164,000) were paid at the NLW.
• A rising NLW pushes up the pay of those paid above the NLW – and pulls up the pay of those paid below the NLW.
• But pay at the bottom is also pushed up by pay settlements which have tended to give the largest increases to those at the bottom.
• And, more generally, public debate on the scourge of low pay.
• Also, young peoples’ engagement with the labour market differs. Possibly, greater turnover means higher job-to-job pay growth in a strong job market (and the reverse in a weak job market).
Difficult to disentangle factors but, irrespective of drivers, employers are evidently willing and able to increase pay for young workers.
55
Many young workers are paid within the NMW
structure, but often between their age rate
and the rate above them.
56
10
37
2
9
18
24
3
6
4
7
7
4
7
5
21
49
81
0
10
20
30
40
50
60
70
80
90
100
16-17 18-20 21-24
Dis
trib
utio
n o
f h
ou
rly p
ay (
pe
r cen
t)
Above NLW
At NLW
Below NLW
At 21-24 rate
Below 21-24rate
At 18-20 rate
Below 18-20rate
At 16-17 rate
Below 16-17rate
A falling proportion of 18-24 year olds were
paid at their applicable minimum wage,
helped by employers paying the NLW.
57
10.4
8.9
6.1
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
2013 2014 2015 2016 2017
Pro
po
rtio
n o
f w
ork
ers
pa
id a
t th
e a
ge
-ap
plic
ab
le N
MW
, 5
p b
an
d(p
er
ce
nt)
16-17 18-20 21-24
NLW introducedin April 2016
Widespread compliance.
Underpayment is low and stable for 18-20
year olds and 21-24 year olds.
58
1.6
1.4
.0
.5
1.0
1.5
2.0
2.5
2013 2014 2015 2016 2017
Pro
po
rtio
n o
f w
ork
ers
pa
id b
elo
w t
he
age
-ap
plic
ab
le N
MW
(pe
r ce
nt)
16-17 18-20 21-24
Strong pay growth means that the bite is
below its peak for 18-24 year olds, and for 16-
17 year olds if the new cycle is considered.
59
72.272.3
77.3
74.7
78.9
77.4
66
68
70
72
74
76
78
80
April 2013 April 2014 April 2015 April 2016 October 2016 April 2017
Bite
at th
e m
ed
ian
of th
e h
ou
rly p
ay d
istr
ibu
tio
n (
pe
r ce
nt)
16-17 18-20 21-24
On the old uprating cycle, the rates were introduced in October and the bitemeasured the following April, when pay had risen and the bite fallen.
On the new uprating cycle, the biteis measured in the month of the Apriluprating, when the bite is highest.
What about jobs?
• Are young people struggling to find
work?
• If so, increasing the minimum wage will
only exacerbate their difficulties.
• If not, more scope to increase the pay
floor.
60
Rising employment rates for 18-24 year
olds not in full-time education.
61
44.345.7 46.5 46.3 46.4 46.4 46.6 46.6 45.9 45.0 45.4 44.6
65.366.2 66.3 66.2 66.5 66.7 67.3 67.5 67.6 67.7 67.8 68.2
75.4 75.8 76.4 77.0 77.7 78.4 78.7 79.1 79.1 79.4 79.9 80.3
35
40
45
50
55
60
65
70
75
80
85
90
201
4 Q
2
201
4 Q
3
201
4 Q
4
201
5 Q
1
201
5 Q
2
201
5 Q
3
201
5 Q
4
201
6 Q
1
201
6 Q
2
201
6 Q
3
201
6 Q
4
201
7 Q
1
201
7 Q
2
Em
plo
ym
en
t ra
tes f
or
tho
se
no
t in
FT
E (p
er
ce
nt)
16-17 18-20 21-24
NLW announced July 2015
NLW introducedApril 2016
ReferendumJune 2016
Falling unemployment rates for 18-24 year
olds not in full-time education.
62
32.3
30.2 29.8 30.3 30.2 30.5 30.6 30.331.3 31.0 31.0 31.3
21.620.4 19.8 19.9
19.2 18.717.9 17.3 16.8 16.3 15.8 15.5
12.912.1
11.4 11.0 10.6 10.0 9.7 9.5 9.3 9.1 8.8 8.4
0
5
10
15
20
25
30
35
40
201
4 Q
2
201
4 Q
3
201
4 Q
4
201
5 Q
1
201
5 Q
2
201
5 Q
3
201
5 Q
4
201
6 Q
1
201
6 Q
2
201
6 Q
3
201
6 Q
4
201
7 Q
1
201
7 Q
2
Un
em
plo
ym
en
t ra
tes f
or
tho
se
no
t in
FT
E (p
er
ce
nt)
16-17 18-20 21-24
NLW announced NLW introducedApril 2016
ReferendumJune 2016
The relativities between the rates
• There are good reasons for having a lower wage floor
for younger workers (countries with no age rates tend
to have much higher youth unemployment).
• The gap between the youth rates and adult rate
increased following recession, as we recommended
lower increases for the youth rates to protect young
people – including a freeze of the youth rates in 2012.
• Research evidence suggests that these actions helped
to protect young people.
• But we said that we hoped to restore the lost value of
the youth rates once economic conditions had eased.
63
The April 2018 upratings restore some of the
relative value of the 18-20 Year Old Rate.
64
83.3
86.585.4 85.7
84.4 84.5 84.283.2 83.3 83.2 83.3 83.0
81.9
80.579.7
78.9 79.179.9 79.4
79.9
61.9
59.4
61.7 61.6 61.6 61.6 61.460.5
59.5 59.058.3
57.8 57.6 57.456.9
50
55
60
65
70
75
80
85
90
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Pe
r ce
nt
18-20 Year Old Rate as a percentage of NMW / 21-24 Year Old Rate
16-17 Year Old Rate as a percentage of NMW / 21-24 Year Old Rate
Longer-term changes to the youth labour
market could have implications for the rates.
• Increasing educational participation.
• Falling labour market participation.
• Part-time jobs replacing full-time jobs.
• Increasing reliance on low-paying jobs, particularly in retail and hospitality.
Are historic rates relativities appropriate for today’s labour market?
Do changes to the youth labour market change the role and purpose of the youth rates?
Commissioners agreed that they wanted to take a fresh look at the minimum wage structure next year. To ensure that the rates, and the relativities between them, are fit for purpose.
65
66
And apprentices?
67
Key considerations for the Apprentice Rate:
jobs, pay and stakeholder views
Jobs? Difficult to interpret the latest data on apprenticeship
starts:
• Approximately 1 million apprentices studying at any one time,
just over half aged 16-24 years (approximately 7 per cent of this age
group).
• Apprenticeship policy is in flux: the introduction of the levy, co-
funding, and the shift from frameworks to standards, is affecting
starts in England, which were brought forward to avoid the policy
changes.
Stakeholders supported an increase in the Apprentice Rate:
• Representatives of employers and employees called for an increase
in the Apprenticeship Rate to increase quality and standing.
Pay data supported an increase in the Apprentice Rate.
68
£3.88
£5.30
£7.28
£8.04
£5.30
£5.37
£7.04
£8.40
£10.00
£7.69
£4.69
£5.60
£7.19
£9.62
£5.66
£5.58
£7.04
£8.52
£10.27
£7.86
16-18
19-20
21-24
25+
Total
16-18
19-20
21-24
25+
Total
£- £5.00 £10.00
2016 2017
21%
6%
-1%
20%
7%
4%
0%
1%
3%
2%
Ye
ar
1
Ye
ar
2+
Median hourly earnings (2016 & 2017) Percentage change
The youngest apprentices saw a large
increase in their hourly earnings.
Summary
Key evidence for the youth rates decision:
• Rising youth pay and a falling bite.
• A strong youth labour market.
• Falling use of the youth rates and no
compliance problem.
• A mixed picture on the economy, some
uncertainty about the future, but current
growth exceeding expectations.
69
Recommendations on the
National Minimum Wage
Low Pay Commission
November 2017
70
